Guaranty Bancshares, Inc. Reports Second Quarter 2019 Financial Results

Guaranty Bancshares, Inc. GNTY, the holding company for Guaranty Bank & Trust, N.A., today reported financial results for the fiscal quarter ended June 30, 2019. The company's net income available to common shareholders was $6.0 million, or $0.52 per basic share, for the quarter ended June 30, 2019, compared to $5.3 million, or $0.45 per basic share, for the quarter ended March 31, 2019 and $4.6 million, or $0.41 per basic share, for the quarter ended June 30, 2018. In addition to increased net income, earnings per basic share during the second quarter of 2019, compared to the same period in 2018, were impacted by our repurchase of 463,717 shares of common stock between July 1, 2018 and June 30, 2019. Return on average assets and average equity for the second quarter of 2019 were 1.05% and 9.97%, respectively, compared to 0.94% and 9.11%, respectively, for the first quarter of 2019 and 0.90% and 8.58%, respectively, for the second quarter of 2018.

"We are pleased with our financial results in the second quarter as we continue to build scale in all of our markets and execute on our strategic focus of improving net interest margin and efficiencies throughout the Company. While loan growth has slowed somewhat in recent quarters, we continue to build strong relationships with high quality borrowers, which has also contributed to our strong core deposit growth. We will continue to execute on our stock repurchase plan when we see our stock valuation as attractive and representing a good long-term value for our stakeholders," commented Ty Abston, the company's Chairman and Chief Executive Officer.

The company's growth in net earnings in the second quarter of 2019, as compared to the second quarter of 2018, was primarily attributable to an increase in net interest income, before the provision for loan losses, of $2.8 million. This was partially offset by an increase in noninterest expense of $1.3 million, of which $904,000 was due to increased employee compensation and benefits and $431,000 to occupancy expenses. The increase in employee compensation and benefits resulted from our acquisition of Westbound Bank on June 1, 2018, and from an increase of 16 full-time equivalent employees, from 449 as of June 30, 2018 to 465 as of June 30, 2019, in order to continue growing our two de novo locations in Austin and Fort Worth, Texas, as well other employees that were added to support operational growth. The increase in occupancy expense from the second quarter of 2018 resulted primarily from new locations in Austin and Addison, Texas, as well as our new corporate offices in Addison.

Net interest income, before the provision for loan losses, in the second quarter of 2019 and 2018 was $19.3 million and $16.5 million, respectively, an increase of $2.8 million, or 17.18%. Net interest margin for the second quarter of 2019 and 2018 was 3.61% and 3.44%, respectively. Net interest income and net interest margin, on a taxable equivalent basis, were $19.3 million and 3.61%, respectively, for the second quarter of 2019. Our net interest income was positively affected by achieving higher increases in loan yields than for deposit costs. During the period, our loan yield increased from 5.00% as of June 30, 2018 to 5.39% as of June 30, 2019, a change of 39 basis points, while our interest bearing deposit costs increased from 1.25% to 1.56% during the same period, a change of 31 basis points. Net interest margin declined from 3.64% in the first quarter of 2019 to 3.61% in the second quarter of 2019, primarily due to recognition of $213,107 in interest income during the first quarter for two non-accrual loans that was unexpectedly paid off in full, thus increasing the average loan yield earned during the first quarter of 2019 by 0.05%.

The provision for loan losses was $575,000 in the second quarter of 2019, compared to $575,000 in the first quarter of 2019 and $650,000 in the second quarter of 2018. The provision for loan losses is primarily reflective of organic growth during the respective periods. Nonperforming assets as a percentage of total loans were 0.64% at June 30, 2019, compared to 0.31% at March 31, 2019, and 0.76% at June 30, 2018. The increase in nonperforming loans from the first quarter to the second quarter of 2019 results primarily from three Small Business Administration (SBA) partially guaranteed loans with combined book balances of $5.8 million as of June 30, 2019 that were acquired from Westbound Bank in June 2018 and for which we are currently in the process of foreclosing and liquidating the underlying collateral. Excluding these partially SBA guaranteed loans, for which we expect minimal losses, non-performing assets as a percentage of total loans at June 30, 2019 would be 0.29%.

Noninterest income increased $194,000, or 4.95%, in the second quarter of 2019, compared to $3.9 million for the quarter ended June 30, 2018. The increase from the same quarter in 2018 was due primarily to a $198,000, or 22.7%, increase in merchant and debit card fees and a $55,000, or 14.5%, increase in fiduciary income, which were partially offset by a decrease in other non-interest income of $143,000, or 15.9%, resulting from a one-time sales-tax refund from our core processing vendor that was received during the second quarter of 2018.

Noninterest income increased $548,000, or 15.38%, to $4.1 million in the second quarter of 2019, compared to $3.6 million for the quarter ended March 31, 2019. The increase was primarily attributable to an increase in the gain on sale of loans of $206,000, or 43.19% from the prior quarter, an increase of $110,000, or 11.4%, in merchant and debit card fees and an increase of $165,000, or 28.0% in other noninterest income. The increase in other noninterest income was due primarily to a $263,000 servicing asset adjustment that reduced noninterest income in the prior quarter and an $86,000 increase in mortgage loan origination and fee income during the second quarter of 2019.

Noninterest expense increased $1.3 million, or 9.42%, in the second quarter of 2019, compared to the second quarter of 2018. The increase in noninterest expense in the second quarter of 2019 was primarily driven by an increase in employee compensation and benefits expense to $8.7 million, up $904,000 from the same quarter of the prior year due in part to the Westbound acquisition on June 1, 2018 and to additional employees at our two de novo locations in Austin and Fort Worth, Texas. Occupancy expenses also increased $431,000, from $2.0 million in the second quarter of 2018, to $2.4 million in the second quarter of 2019. The increase in occupancy expense resulted primarily from relocating into a new permanent location in Austin, as well as a new location and corporate offices in Addison, Texas. The company's efficiency ratio in the second quarter of 2019 was 65.74%, compared to 68.88% in the same quarter last year.

Noninterest expense decreased $76,000, or 0.49%, in the second quarter of 2019 to $15.4 million, compared to $15.5 million for the quarter ended March 31, 2019. The decrease was primarily due to a $293,000, or 3.26% decrease in employee compensation and benefits in the current quarter, which was partially offset by a $107,000 increase in FDIC insurance assessment fees from $33,000 in the previous quarter to $140,000 in the second quarter of 2019. The company's efficiency ratio in the second quarter of 2019 was 65.74%, compared to 68.55% in the prior quarter.

Consolidated assets for the company totaled $2.33 billion at June 30, 2019, compared to $2.31 billion at March 31, 2019, and $2.24 billion at June 30, 2018. Gross loans increased 2.30%, or $38.1 million, to $1.69 billion at June 30, 2019, compared to loans of $1.66 billion at March 31, 2019. Gross loans increased 6.30%, or $100.4 million, from $1.59 billion at June 30, 2018. Deposits increased by 1.11%, or $21.7 million, to $1.98 billion at June 30, 2019, compared to $1.96 billion at March 31, 2019. Total deposits increased 7.33%, or $135.6 million, from $1.85 billion at June 30, 2018. Increases in gross loans and deposits during these periods resulted from organic growth. Shareholders' equity totaled $250.1 million as of June 30, 2019, compared to $250.3 million at March 31, 2019 and $239.7 million at June 30, 2018. The decrease from the previous quarter resulted primarily from repurchases of common stock and payment of dividends, partially offset by increases in operating earnings. The increases from the second quarter of 2018 were primarily the result of operating earnings, partially offset by the repurchase of common stock and payment of dividends during the period.

(1) See Reconciliation of non-GAAP Financial Measures table.

(2) Net interest margin represents the annualized net interest income on a fully tax equivalent basis divided by average interest-earning assets.

(3) The efficiency ratio was calculated by dividing total noninterest expense by net interest income plus noninterest income, excluding securities gains or losses. Taxes are not part of this calculation.

(1) Excludes outstanding balances of loans held for sale of $4.1 million, $1.2 million, $1.8 million, $826,000, and $1.7 million as of June 30 and March 31, 2019, and December 31, September 30, and June 30, 2018, respectively.

(2) Excludes deferred loan fees of $601,000, $466,000, $560,000, $727,000, and $857,000 as of June 30 and March 31, 2019, and December 31, September 30, and June 30, 2018, respectively.

(3) Restructured loans-nonaccrual are included in nonaccrual loans which are a component of nonperforming loans.

(1) Includes average outstanding balances of loans held for sale of $1.2 million and $1.9 million for the three months ended June 30, 2019 and 2018, respectively.

(2) Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

(3) Net interest margin is equal to net interest income divided by average interest-earning assets, annualized.